Bay Area Home Prices Sizzle in July

Bay Area luxury home sales continue to sizzle this summer and posted a 31 percent increase from last July.

Year over year, sales of homes priced between $2 million and $3 million were up by 93 percent in Alameda County and by 50 percent in Contra Costa County. Marin County posted a 72 percent increase in sales of homes priced above $3 million.

Sales slowed the most in Napa and Sonoma counties on an annual basis, while Marin and Santa Clara counties led the region with strong July increases.

Inventory is falling at twice the rate in San Francisco and Silicon Valley than in other Bay Area regions.

Bay Area home prices continued to soar, with the overall median price up 11 percent from last July and double-digit percent gains observed in Sonoma, Santa Clara, and Alameda counties.

While strong market activity in Silicon Valley is raising some eyebrows, buyers are still coming with plenty of cash and large down payments.

The bullish rush into the summer months continued for Bay Area housing markets in July. And while sales were mostly restricted by dismal inventory levels, prices continued rising, as buyers competed for the few homes that were available.

Overall, sales continued to fare 2 percent higher year to date, with higher-priced homes accounting entirely for the increase. Again, as noted in the last few months, luxury homebuyers have been busy this summer and helped fuel this segment of the market, with a 27 percent increase in sales of homes priced between $2 million and $3 million year to date. All Bay Area counties except Napa saw solid double-digit-percent increases in that price range, with Alameda County posting a 43 percent increase and San Mateo County posting a 36 percent increase. Considering all price segments, Alameda County showed the most growth in sales year to date, with a 5 percent increase over the same period last year.

In July, overall Bay Area sales were 2 percent lower on an annual basis, though the range of year-over-year differences in Bay Area counties varied widely. For example, typically considered second-home markets, Napa and Sonoma counties posted double-digit-percent declines from last July, while Marin and Santa Clara counties showed the strongest improvements. Differing trends between the North Bay and Silicon Valley have persisted throughout 2017 but also reverse last year, when most of the activity occurred in the North Bay, and Marin County and Silicon Valley were on a sliding scale. The rebound in Marin County is interesting, as not only have sales grown at some of the fastest rates from last year but home price appreciation has led Bay Area counties.

It’s interesting to consider sales activity trends for each Bay Area county over the last two-and-a-half years. Figure 1 and Figure 2 show home sales patterns for each local county; the data is split into two charts since activity levels in the East Bay and Santa Clara County are much higher than in the rest of the Bay Area. Several trends are worth noting. In Figure 1, Santa Clara’s pickup this summer put the county’s activity above that of the last two years. And while all regions appear to have experienced a notable decline in sales in July, the drop-off could be attributed to data being pulled from MLSes on the Monday following the July 4th weekend. Thus, it is very likely that we will see upward revisions next month for July sales. San Mateo County sales this summer (Figure 2) also showed a solid jump from two summers ago.

Again, Marin County activity stands out in Figure 2, with the smallest decline in July and a solid increase in sales following a seasonal slowdown. Lastly, while Napa County has had the lowest sales activity in the region and has shown some slowing this year, trends there have remained relatively consistent over the past couple of years.

On the other hand, for-sale inventory continued to decline at double-digit-percent rates. For the region, inventory was 19 percent lower than last July. San Francisco and Silicon Valley lost inventory levels at twice the rate of other Bay Area counties. In Santa Clara County, inventory was 32 percent lower than last July. Combined with the second strongest increase in activity year over year in July, Santa Clara and San Mateo counties showed the lowest unsold inventory index numbers among Bay Area counties. At only about a one-month supply of homes for sale, the two-county unsold inventory index is at one of the lowest levels ever observed.

Supply-and-demand inequities and tight inventory conditions are fueling home prices this summer. The median home price in the Bay Area increased 11 percent to $861,750. The highest year-over-year increase in July was in Sonoma County, where the 15 percent jump put the median price at $611,500. Home prices have nevertheless soared across the whole region. Figure 3 and Figure 4 summarize trends by region, which are again split into two groups based on their differing levels.

Figure 3 summarizes the Bay Area’s more expensive regions: Silicon Valley, San Francisco, and Marin County. In these areas, the median price has increased between 20 percent and 30 percent from the annual lows. With the strongest growth, Santa Clara County showed a median price 29 percent higher at its summer peak compared with January of this year. Marin County is another region with a soaring median price but also the longest and steadiest increase since the fall of last year.

Again, these are median prices, and they reflect the mix of homes being sold. And with strong growth among higher-priced homes, it is conceivable to see such a healthy increase. San Mateo County, with comparatively fewer sales, has more variation in the median price but has still shown a 23 percent increase from trough to peak over the last year. Even San Francisco, which has seen moderation in median price growth over the last year, posted a solid rebound since the beginning of 2017. In July, the median price in San Francisco was 7 percent above last July and 4 percent higher year to date. Median prices for condominiums in San Francisco have been especially strong, with a 12 percent increase over last July.

Figure 3: Median sales price change in select Bay Area counties

Source: California Association of Realtors

Figure 4 summarizes median price trends for the more affordable Bay Area counties. A notable turnaround occurred in Contra Costa County, where after a relatively more extensive period of declines, the median price picked up again this summer and reached a historically high point. Alameda County, on the other hand, had a relatively lower seasonal dip in prices, which have grown since the beginning of the year.

Taken together, median price growth in the region is somewhat stronger than most experts predicted this year. A rallying stock market, strong employment growth, and insufficient for-sale inventories have all helped drive demand and prices. Many pundits have consequently wondered if we have entered yet another frothy housing market period. The main point there is whether demand is coming from occupant buyers and how they are paying for those homes.

The level of investor activity remains low in the Bay Area. According to Pacific Union data, only 2 percent of homes bought in in 2017 in Silicon Valley were done so with the intention to flip them. Also, just 6 percent of homes were bought as investment or rental properties. Eighty-six percent of purchases in Silicon Valley were for primary residences, but other Bay Area regions show similar trends.

Figure 5 and Figure 6 summarize buyers’ methods of purchase for homes priced below $2 million and those priced above $2 million. Almost half of homes purchased for less than $2 million were bought with 20 percent down payments, while only 7 percent were bought with less than 20 percent. Additionally, for higher-priced homes, 37 percent of purchases were all cash, and 36 percent were financed with more than a 20 percent down payment. It appears that Silicon Valley buyers are not highly leveraged and are purchasing homes with solid skin in the game. Nevertheless, as some anecdotal evidence suggests, there is increased use of RSUs (restricted stock units), which are being counted towards buyers’ incomes and indicate higher risk tolerance among the lending community.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.